Do credit unions benefit from bank consolidation?
Experts are divided on the matter, but recent consolidations in Florida have raised questions about whether or not credit unions can capitalize on a shifting landscape.
Florida has seen a flurry of bank consolidations in recent months with more deals imminent. Among them, Miami-based Continental National Bank will be sold to First American Bank of Illinois, while Brickell Bank of Miami has found a buyer in Banesco USA of Coral Gables, Fla.
Just as credit unions have seen consolidation, so has the for-profit banking space. Data from the Federal Deposit Insurance Corporation reveals the number of bank branches in the Miami-Fort Lauderdale-West Palm Beach area declined by 7% between June 2013 and June 2018, though deposits at those institutions rose by more than 34% during that same time period, reaching $237 billion.
But has this decrease in bank branches in the Miami metropolitan area translated into a bounty for local credit unions? It depends who you ask.
Michael Bell, a Michigan-based attorney who specializes in helping to engineer mergers between banks and credit unions, said that, in general, bank consolidations offer an opportunity for credit unions to gain new members and talented employees. That said, Bell does not think it is typical for local credit unions to witness a “material” increase in membership unless the bank merger is handled very poorly by the parties involved.
Indeed, Jeanne Kucey, president and CEO of JetStream Federal Credit Union, a $202 million-asset institution based in Miami Lakes, Fla., said bank consolidation in the area has not led to “any type of measurable impact” at JetStream. “Maybe because Miami is such a large market,” she added.
Still, JetStream saw membership fall from 20,301 to 18,685 between March 2018 and March 2019, a decline of about 8%. Kucey declined to comment on the reason for that drop. According to NCUA call report data, loan volumes at the credit union during that period fell from $147 million to $130 million, an 11% decline, including a 17.7% drop in auto loans, from $85.8 million to $70.7 million, driven primarily by a reduction in used car loans.
Brian Turner, president and chief economist at Meridian Economics LLC, said bank consolidations "very rarely" lead to growth in membership or market share for local credit unions by customers transferring to a credit union. “Otherwise, bank customers would have been with the credit unions in the first place,” he pointed out.
Jared M. Ross. senior vice president for association services and governmental affairs at the League of Southeastern Credit Unions & Affiliates, cautioned that even if credit unions do see an influx of members amid bank consolidation, that is more likely the result of what credit unions are already doing than anything related to banks. He added that consumers like the fact that credit unions tend to be locally based, “so that helps when a local bank disappears, but again, I continue to believe it’s our model that truly drives success.”
Shrinking banks, growing CUs
Brian Best, CEO at Tampa-based GTE Financial, spent 15 years on the banking side before coming to the credit union movement. He said he believes CUs do benefit from a shrinking bank space.
”I was involved in about 15 bank mergers over my banking career, and I would estimate that, on the average, the surviving bank loses about 40% of the acquisitioned customer base two years after the merger,” he said.
In some cases, he added, they lost as many as 70% of their original clients – and many of them switched either to other banks or credit unions.
“People don’t like change; they don’t like changing their account numbers and passwords, etc.,” Best said.
The merger of BB&T and SunTrust Banks to
Joe Mecca, vice president of communications at the $3.25 billion-asset Coastal Credit Union of Raleigh, noted that the Tar Heel State has witnessed some major bank mergers in recent years, including not just BB&T-SunTrust, but Wachovia-Wells Fargo, RBC Bank-PNC Financial Services and more.
“In my experience, big bank mergers have been good for us,” Mecca said. “Anecdotally, each time, we saw a lot of consumers ‘in play’ and were able to grab new members, particularly [for our] checking accounts. The new members we hear from are usually dissatisfied with the [bank] branch or transactional experiences after the merger.”
Consolidation can also benefit credit unions from a staffing perspective.
Mecca said the 2011 RBC-PNC merger – which led PNC to lay off about 600 workers in North Carolina – allowed Coastal to snap up some of these people as new employees. “We saw a lot of talent become available and made some great hires,” he added.
Banking professionals who have been let go post-merger are often excellent recruiting targets for credit unions – especially in a tight labor market, commented Suzanne Weinstein, president and CEO of $235 million-asset Orlando FCU. She pointed to compliance, commercial lending, business account services, business development and digital banking as areas of expertise that are particularly needed to compete in Florida.
Weinstein also noted that although the number of bank mergers is on the rise, the number of traditional and non-traditional financial institutions (including fintechs) is at an all-time high, meaning credit unions have more competition than ever. The end result for credit unions in the Sunshine State, she added, will be a need to “continue to compete aggressively” for members and “continuously refine” and design products, campaigns and member-loyalty programs in order to keep growing.
